It was clear the fertiliser subsidy would attract corruption

What you need to know:

  • It’s taxing to believe that a room of bureaucrats can decide that they must put together an elaborate system for farmers to follow in order to qualify for the subsidy.
  • One must guess that quite a number of farmers have had to make compromises in order to get these approvals.
  • It was a sophisticated racket that managed to transport a bulky product and repackage it in readiness for sale at the true cost.

Earlier this week, the press corps reported the Central Bank of Kenya governor's view that the level of public debt in Kenya is reasonable. He was, the reports said, more concerned with the efficiency of spending.

This important statement of his policy judgment was followed by quiet moments because he shifted the discourse to how government dedicates public resources, not to the level of debt itself.  

My view is that the governor is too optimistic and that both the debt level and the efficiency of spending should be of concern.

By saying that the efficiency of public spending is a reason for concern, the governor was suggesting that Kenyans do not get much value for money from what the various arms of government spend. In other words, taxpayer money is being wasted.

There is a whole raft of spending decisions that the present administration and other arms of government have made that are popular, but which still fail on the standard of efficiency.

The most salient of these is in the area of agriculture policy, especially in seed and fertiliser distribution. This policy is designed with the correct understanding, that farmers in Kenya do not always apply fertiliser as required to increase crop production.

On one hand, the subsidy is intended to increase the affordability of fertiliser, drive up its use and improve farm yields. On the other hand, government has tax resources that it dedicates to increasing the availability of cheap fertiliser in the quest to ensure food security.

Despite the recorded history of subsidy programmes going wrong, the current programme is designed as if it is intended to deliberately deliver poor results.

It’s taxing to believe that a room of bureaucrats can decide that they must put together an elaborate system for farmers to follow in order to qualify for the subsidy.

These bureaucrats have designed the system to require Soviet-style approvals by their colleagues in the provincial administration.

Here is a clear signal that things will go wrong, because anybody who is familiar with the true public regard for the Provincial Administration knows that making them work as extension officers is incredibly naive.

They are considered corrupt, often incompetent and at most times both. Yet the busy farmer is required to visit offices and acquire a set of signatures confirming acreage and their need for the subsidy. 

It is unlikely that the administrator mandated to confirm that these farmers are qualified to receive the cheaper fertiliser will make that approval without being tempted to seek a bribe. One must guess that quite a number of farmers have had to make compromises in order to get these approvals.

Then comes the embarrassing part about the knowledge of markets and how subsidies affect prices and distribution.

Any basic economics textbook teaches that a subsidy serves to increase demand for a product or service by reducing the cost to the person on whom the good is bestowed.

When a bag of fertiliser is sold at Sh1,800 and the price in shops would be Sh3,200 the farmer is expected to receive that benefit from the subsidy.

That is a 77 per cent profit margin. One does not have to be a genius to predict that this subsidy is a clear opportunity for diversion, corruption and theft.

As expected, the Cabinet secretary reported that a number of arrests had been made and more than three tons of fertiliser intended to benefit farmers were found in a private dealer’s warehouse.

It was a sophisticated racket that managed to transport a bulky product and repackage it in readiness for sale at the true cost. Instead of harsh warnings and recriminations, the State ought to apologise to Kenyans for designing an appallingly poor subsidy programme.

The lesson here is twofold. First, good intentions alone are not sufficient for policy, because bad policy design leads to wastage of taxes and creates a double loss for taxpayers.

Second, if popular policy initiatives have gone this badly wrong, what other inefficiencies exist in the public sector?

To end with a positive spin, all that the government needs to do is design and implement an electronic voucher and send the money through to registered farmers with a tax return.

This would confirm the administration’s bona fides as a digital government and the efficiency gained would be equivalent to a tax cut. The government should neither stock nor trade in fertilisers or seeds.